The Difference Between The Two Parties In A Nutshell

by hilzoy

From the Washington Post:

"The House today narrowly approved a $73.8 billion measure to stave off the growth of the alternative minimum tax and offer new tax breaks for middle-income homeowners and poor parents, financed by tax increases that would land primarily on Wall Street titans.

The 216 to 193 vote came after a fiery debate that divided Democrats and energized Republicans, who blasted tax increases that Rep. Sam Johnson (R-Tex.) called "an assault on free enterprise." Democrats angrily countered that all they were doing was closing tax loopholes on super-rich private equity and hedge fund managers to live by their pledge of fiscal responsibility. (...)

For several years, Republican-led Congresses have passed temporary "patches" to stave off the growing reach of the alternative minimum tax, a parallel tax system enacted in 1969 to ensure that 155 super-wealthy families pay some income taxes. Because the law did not ensure that the AMT's income threshold would rise with inflation, the tax now hits 4 million families, and without congressional intervention, it will touch 23 million more this year, mainly with upper-middle incomes.

This year, Democrats added additional measures to offer a mortgage interest deduction to families taking the standard income tax deduction and to expand tax rebates to working parents too poor to pay the income tax. And they opted to offset the cost largely by plugging a tax loophole that has been deftly exploited by the burgeoning private equity and edge fund industries. (...)

Private-equity fund managers earn much of their compensation by taking a cut of earnings of the limited partners that invest in their funds. It is pay for work, said N. Gregory Mankiw, a former chief economist for President Bush, but it is taxed as capital gains, at 15 percent instead of the 35 percent income tax rate that they would otherwise pay.

"I can understand why many in my industry want to preserve this special tax advantage. Clearly, it has served us and me well. The tax subsidy each year to private equity fund, hedge fund and venture capital fund managers is in the billions of dollars," William D. Stanfill, founding partner of Trailhead Ventures L.P. in Denver, told the Senate Finance Committee this summer. "But I think this special tax break is neither fair nor equitable."

Rep. John B. Larson (D-Conn.) said fewer than 50,000 households would claim this so-called carried interest, and those households collectively earn $936 billion -- an average household income of $18.7 million."

So, in brief: if Congress does not do something, the AMT is going to hit 23 million families with higher taxes this year. The House has passed a bill preventing this from happening. Since, to their credit, they passed PAYGO rules that require that any tax cut or spending increase be paid for, they had to find some way to raise taxes. They found a loophole that allows various fund managers, who earn millions of dollars a year, to count those millions as capital gains, and thus to pay much lower taxes than the rest of us, and they closed it.

For this, they are being excoriated by Republicans. David Dreier thinks that PAYGO rules shouldn't apply to "mistakes":

"But anti-tax Republicans said the AMT was a mistake and thus offsets were unneeded. ''What absolute lunacy,'' said Rep. David Dreier, R-Calif., ''paying for a tax that was never intended.''"

What a fascinating principle: you don't have to pay for costs you incur by mistake. I wonder if our creditors will go for that? And why not extend it to other things as well? The Iraq war, for instance, was never expected to last this long: why should we bother to come up with the billions and billions of dollars we are still paying for it? If it comes to that, why not just throw fiscal responsibility out the window? As far as I can tell, David Dreier thinks that that's the only non-lunatic thing to do.

Similarly:

"Rep. Jim McCrery (La.), the ranking Republican on the House Ways and Means Committee, argued that such "a fiscal straitjacket" should not even apply to the alternative minimum tax, reasoning that all Congress is trying to do is keep the taxes of 23 million families from going up. Since that is not really a tax cut, he said, its $52 billion cost to the Treasury should not be paid for."

As I understand it, PAYGO rules do not say that when the dollar amount paid for something goes up, or the dollar amount taken in by some tax goes down, it must be paid for. They say that when the law is changed in such a way that revenues go down or spending on entitlement programs go up, it must be paid for. This is why Rep. McCrery is wrong: we are changing the law in order to keep those 23 million families' taxes from going up, and so we have to cover the costs of doing so.

Maybe Rep. McCrery thinks that it would be better if the rules were different. But he should be careful what he wishes for. When the costs of entitlement programs go up not because of changes in the law, but because of inflation, or increases in the numbers of people who benefit from them, or any of the million and one reasons why existing programs can end up spending more one year than they did the previous year, PAYGO does not require that Congress come up with the money. Conversely, it does not allow Congress to use the additional tax revenues produced by rising incomes, inflation, or increases in the number of citizens subject to tax to offset new spending. Both taxes and spending are allowed to increase in dollars as long as the laws governing them are not changed.

If Rep. McCrery wants to change the rules so that what matters is changes in dollar amounts, not changes to laws, then I assume he is prepared either to cut programs like Medicare and Medicaid dramatically, or to find tax increases large enough to pay for their annual increases. Something tells me, though, that he wouldn't be particularly interested in that, and that he isn't talking about substituting one rule for another, but having one rule for this bill and another for everything else.

This exchange makes the issues pretty clear:

"''Congress can and must stop this middle class tax hike before Thanksgiving -- without raising taxes,'' Senate Republican leader Mitch McConnell of Kentucky said Friday.

But Pelosi said that ''we have an understanding with the Senate that this legislation, in order to go forward, must be paid for.''

''Raising revenues takes political courage,'' said House Majority Leader Steny Hoyer, D-Md. ''There is no courage whatsoever in plunging our country into debt, spending and not paying.''"

And what does the White House say? Well:

"The White House and Republicans, protesting tax increases in the bill affecting mainly investment fund managers, maintained that it would never become law."

And, as a special bonus:

"The White House also said language in the bill to terminate an IRS program farming out delinquency cases to private debt collectors would subject it to a veto."

That would be one of the world's dumbest programs, in which we contract out the right to collect taxes to private firms in exchange for a cut of the proceeds, even though the IRS could collect the money more cheaply itself. As Stephen "Freakonomics" Dubner put it, this "means a lot of money — a lot of tax money, that is, collected from the people who don’t cheat — continuing to go down the drain." (Paul Krugman doesn't think much of this program either.)

Naturally, George W. Bush is prepared to veto a bill that would lower the taxes of 23 million families in order to keep this ridiculous and wasteful program alive.

Comments

[Brett Bellmore]

"Since, to their credit, they passed PAYGO rules that require that any tax cut or spending increase be paid for, they had to find some way to raise taxes."

I know it's a ghastly thought, but couldn't they instead have cut spending?

[Tony P.]

Brett Bellmore asks a good question. Here are some possible answers:

1) Sure, we could cut spending to offset lost revenues from an AMT fix. In particular, we could cut spending on the occupation of Iraq, on the Star Wars fantasy, and on subsidies to corporate farms.
But:

2) Even if we do cut spending, even if we reduce government to drown-it-in-the-bathtub size, we STILL have to allocate the remaining tax burden among American taxpayers. Even if the federal government was running enormous surpluses, we would still need to ask: why do the GOPers want to tax high-middle-class wage earners at a higher marginal rate than astronomically-well-compensated hedge-fund managers?

-- TP

[Gary Farber]

Brett, I'd be curious if you'd read this piece, keeping in mind that the "Congress" referred to at the time was the Republican-controlled Congress, and let us know what you think of this particular example of privatization of a government function, and if you think this might or might not be an example of a case where privatization wasn't an improvement.

Thanks for any substantive response.

[Tom Van Dyke]

The difference between the two parties indeed. According to Howard Dean, one is good, one is evil. Is it that simple?

Prof. Greg Mankiw is quoted here by the WaPo, but the part of his views that's uncomplimentary to Democrats is missing. A caution on forming one's opinions based solely what we read in the papers, perhaps.

From his blog:

"The Washington Post reports that the new Democratic majority in Congress wants to focus on the Alternative Minimum Tax. The AMT is paid disproportionately by residents of Democratic states because those states tend to have high state and local taxes and the state and local tax deduction is disallowed under the AMT.

This raises the question: Is the state and local tax deduction justifiable in the first place? I think not. Suppose the residents of town A vote for high local taxes to finance, say, a municipal pool. The residents of neighboring town B keep taxes low, allowing people who so choose to join a private pool club. Because of the federal tax deduction, town A gets a federal subsidy at the expense of town B. This outcome is neither equitable (it is violates the principle of horizontal equity) nor efficient (it encourages excessive provision of goods and services by states and localities over the private sector).

So if we want to get rid of the AMT, let's combine it with eliminating the state and local tax deduction. That would be, I believe, approximately revenue neutral. I understand that this proposal would not fulfill the political goal of rewarding blue-state voters, so I am not holding my breath expecting it to happen."

[Gary Farber]

Joseph Stiglitz on the Bush/Republican economic legacy.

But what does he know about economics, anyway?

[Bill]

1. Hedge fund guys should pay like the rest of us, well done Democrats.
2. There is nothing wrong with the AMT, 26% is a fair percentage. The Democrats are pandering to their fancy friends with engineered tax returns. Bad Democrats.

PAYGO is too little too late. Under existing entitlement programs and accrual accounting, we already have over $60 trillion in unfunded liabilities, growing by ~$3 trillion a year, and accelerating. People are starting to pick up on this and dump US securities. One ‘expert’ was explaining on TV last night that big dollar holders cannot dump their dollar reserves because, if they did, it would devastate the value of the rest of their holdings. Think about that.

Between dollar dumping, the Fed printing money to keep banks solvent, and Asia selling our T-Bills, bottom line is the cost of borrowing jumps and the electorate’s addiction to other people’s money eventually becomes unsustainable. Really bad times ahead for those who rely on government checks for their well being. Political pandering to the electorate by getting them addicted to Uncle Sugar is unethical. Bad Democrats (and bad Republicans), but really, in the final judgment, bad electorate. A Republic, if you can keep it.

http://usscouts.org/advance/boyscout/bsmotto.asp

[KCinDC]

Can someone explain how the AMT can go from affecting 4 million families to 23 million in one year, just because the threshold was indexed for inflation? I don't believe either the inflation rate or the rate of income increase is that high.

[dkilmer]

"The Difference Between The Two Parties In A Nutshell"

Republicans: starve the beast.

Democrats: starve the guy holding the beast's leash.

[dkilmer]

KC - the short answer is that the normal tax brackets are indexed to inflation, but the AMT is not. So people who make the same amount of money as last year would pay less via the normal brackets this year, and that lower amount would fall below the AMT for the 26 million people they're talking about.

[hilzoy]

KC: I don't know, but one possible answer is that last year (and the year before...) they had temporary patches in place. So it could be that the point is not: the AMT, left unpatched, would have hit 4m last year and 23m this year, but rather: the patched AMT hit 4m last year; if left unpatched, it would hit 23m, because all the increases in the number of people covered that have occurred since we started patching it would all come due at once.

As I said, I don't know if this is right, but it occurred to me as a possibility.

[hilzoy]

In the comment above, for 23, read 27. Or whatever. :)

[dutchmarbel]

Suppose the residents of town A vote for high local taxes to finance, say, a municipal pool. The residents of neighboring town B keep taxes low, allowing people who so choose to join a private pool club. Because of the federal tax deduction, town A gets a federal subsidy at the expense of town B.

Town B probabely has residents going to the municipal pool in town A - that the residents of town A paid for with tax increases.

[Hartmut]

I also love the WH idea of reintroducing tax farming (abonnement fiscal, that popular pre-1789 program that made the world save for the glorious rule of Louis XXVII we enjoy today). Sign the petition for a rogue elephant exception in the eighth amendment.

[rea]

I also love the WH idea of reintroducing tax farming (abonnement fiscal, that popular pre-1789 program that made the world save for the glorious rule of Louis XXVII we enjoy today

The ancient Romans had them too. Not nice people--even Jesus was critcized for hanging out with prostitutes and tax farmers

[Phil]

Town B probabely has residents going to the municipal pool in town A - that the residents of town A paid for with tax increases.

No, in most such cases you have to show ID with a local address to use the municipal facilities, or get a special ID from the facility. That's been the case everywhere I've ever lived in the US.

[OCSteve]

First of all I support the Democrats here. I want the AMT fixed, and I don’t have a lot of sympathy for private-equity fund managers, but I do have to point out that old law of unintended consequences.

1969 – We need more revenue. Let’s just tax the super-rich! It’s only 155 super-rich households. The super-rich aren’t paying their fair share. They’re taking advantage of legal deductions we put into the tax code. They should pay an alternative minimum tax!

2007 – The AMT is a disaster! It’s going to hit 27 million households this year! Let’s tax the super-rich to “fix” this! It will “land primarily on Wall Street titans”. The super-rich aren’t paying their fair share. They’re legally taking advantage the tax code!

Again, I support the Democrats on this. Let’s get this out of the way and maybe save someone else a few keystrokes: Yes, I’m an evil conservative. I’d rather see people dying in the streets than take a dime from the rich. Make that children dying in the streets. Make that cold and hungry children with bad teeth…

But I’m really not seeing the “Difference Between The Two Parties” hilzoy.

The chairman of the House Ways and Means Committee has proposed legislation that would effectively halt some current tax audits of people who get a tax break for living and operating a business in the United States Virgin Islands.

Many beneficiaries of the tax break are campaign contributors to the lawmaker, Representative Charles B. Rangel, Democrat of New York, according to data collected by CQ MoneyLine, which tracks political contributions.
…
Beneficiaries of the tax break including Michael W. Masters and Richard H. Driehaus, money managers, accounted for more than half the $51,900 that individuals in the Virgin Islands gave last year to Rangel for Congress, the chairman’s campaign organization. Mr. Rangel raised almost three times as much from such donors last year as in any other year in the MoneyLine database.
…
The provision is in a broader tax relief bill intended to prevent some 21 million American households from falling subject to the alternative minimum tax this year. That broader bill was approved by Mr. Rangel’s committee last week.
…
Financial services companies and their executives began flocking to the islands, taking steps like contributing to local charities as ways of establishing residency, which was required to capitalize on the program’s tax benefits.

And this?
Democrats angrily countered that all they were doing was closing tax loopholes on super-rich private equity and hedge fund managers to live by their pledge of fiscal responsibility.

Pledge of fiscal responsibility?!? Spare me.

House Appropriations Committee Chairman David R. Obey, D-Wis., challenged House Republicans to join Democrats in supporting the bill despite the veto threat.

Obey made clear that lawmakers who support the president risk losing what many members most want out of spending bills: earmarks, or funding for local projects.

“I would ask every serious-minded person in this body if they really think there’s a chance of a snowball in Hades that members’ earmarks on either side of the aisle will survive if we wind up at the president’s level of funding,” he said.

Let’s see: Looking for $52 billion for this AMT thing… Hey I know – let’s add $8 billion in bipartisan pork to the water works bill! That should help.

Both parties are bad on fiscal responsibility. Both care more about pandering to whoever they think is a good voting block and/or whoever is filling their campaign coffers.

Bah.

[Brett Bellmore]

"1) Sure, we could cut spending to offset lost revenues from an AMT fix. In particular, we could cut spending on the occupation of Iraq, on the Star Wars fantasy, and on subsidies to corporate farms."

Cool! Go for it!

"2) Even if we do cut spending, ... why do the GOPers want to tax high-middle-class wage earners at a higher marginal rate than astronomically-well-compensated hedge-fund managers?"

I think I addressed that over in the "Don't be a liberal hatuh" thread. Essentially, the Republicans tend to take a market view of fairness: That it consists of people getting what they've paid for, and paying for what they get. And "astronomically well compensated hedge fund managers" aren't actually getting all that much in government services, so why the heck should they be paying astronomically high taxes?

Remember, "From each according to their ability, to each according to their need." is a maxim that's more popular among Democrats than Republicans.

"Brett, I'd be curious if you'd read this piece, ...
Thanks for any substantive response."

Of course it's a bad idea: Forcing people to do things, (In this case, pay up.) is, like, the definitive governmental function. It's really the only thing the government is any better at than the private sector. Outsourcing it is madness.

Heck, it would make more sense to have private creditors who are having trouble collecting sell their bad debts to the IRS for collection.

[DaveC]

Brett, there is an IRS lady at the place in Mount Prospect, Illinois, who is Smokin' Hot!

Plus she got all my 1099s when I thought I had lost some. I say, man the IRS with pretty women, and they'll do a better job of collecting taxes.

[Nate]

I would question the "Hedge fund managers aren't getting that much in government services" claim, because their entire job depends on the existence of government regulated financial markets, a society that produces enough surplus in money, food, and other necessities to allow the existence of hedge funds and the manager thereof, food and safety departments to ensure the caviar they buy is caviar, and not plastic beads, insurance and regulations that allow people to trust financial markets enough to put their money in them, military and police to provide the physical security that allows them to work, schools and zoning boards and building inspectors to keep their office from collapsing, regulations and inspectors to ensure their water is clean enough to drink and air is breathable, and enough social security and order that the peasants don't decide to re-enact the French Revolution.

So claiming they don't get much government services, just because they don't get welfare, or food stamps, or whatever, is rather disingenuous and a very limited view of "government services".

[Bruce Baugh]

Hedge fund managers do, of course, depend on the government's involvement in insurance, telecommunications infrastructure, statistical collection and distribution, standards in weights and measures, courts to enforce contracts, the police (including protection from mobs), physical infrastructure including surface and air transportation and standardization of electrical interfaces, patent and copyright registration and enforcement...and that's all off the top of my head.

[Bruce Baugh]

Nate and I also do duets for weddings, funeral, bar mitzvahs, and Chapter 11 consolidations.

[Brett Bellmore]

See, in the end you went all tautological on me, trying to define government services so that the exact same services are "worth" vastly more to the wealthy. But do they cost vastly more to provide?

I'm not denying that the wealthy get more government services. But I am denying that it scales even proportional to income. Putting $10,000 in my wallet doesn't make it (Checks wallet...) 500 times more expensive to keep me from being mugged. Especially if I move to a gated community, and keep a couple of body guards on staff.

Even the flat tax rips off the wealthy. That's the point of the tax system, from a politician's viewpoint: Since everybody gets to vote only once, you concentrate the pain as much as you can get away with, and spread the benefits as much as you can, to maximize the vote yield. It's got squat to do with abstract conceptions of justice, no matter what rationales we might try to come up with after the fact. It's all about robbing Peter to buy Paul, John, and Ringo's support.

[Nate]

We weren't talking about the costs to provide it, we were talking about the benefits obtained from government, Brett. That's what you were talking about, when you said "And "astronomically well compensated hedge fund managers" aren't actually getting all that much in government services, so why the heck should they be paying astronomically high taxes?"

They ARE getting that much in government services, and they get quite a lot more benefit from them than the poor do. Who benefits more from the government run FAA, which keeps plane travel smoother and less dangerous than travel by car, the hedge fund manager who flies many places, or the poor who never get to travel? Who benefits more from government insurance of banks, a hedge fund manager with thousands of dollars deposited, or the guy who keeps the minimum possible in his checking account, just so he can cash his paychecks each week? Who benefits more from well-built and maintained office skyscrapers? Legal contract enforcement? Hell, who benefits more from Federal Reserve rate adjustments? Who benefits more from the Internet? Who benefited more from government funded universities and schools? Who benefits more from the electrical grid, the poor who run a kitchen and TV and lights, or the market fund manager who runs his office full of computers?

Also, a brief bit from my stuff about marginal utility, in the "Liberal hater" thread.

"If you have two dollars, and pay one dollar to walk on a sidewalk, that's half of your money. If you have a hundred dollars and pay one dollar to walk on the same sidewalk, that's 1% of your money. And if you have $100,000 and pay one dollar, that's .001% of your money.

When you have more money, each individual extra dollar of cost or earnings nets you less effect than the last. And each dollar you spend hurts you less, because you still have plenty more available. That's the entire point of progressive taxation, it's not a matter of screwing the rich, it's a matter of maximizing utility."

Larger values in absolute dollar terms can still be less in percentage terms. And even identical percentages are still less, in proportional effect. A 15% flat tax that takes $15 from somebody with $100 and leaves them with $85 affects them more than it affects the guy who has $100,000 and ends up with $85,000 afterwards. He may pay more, but I don't think there's any way you can say he's more "screwed", because he still has a thousand times the money the other person had.

[Davebo]

"I would question the "Hedge fund managers aren't getting that much in government services" claim

I wouldn't even bother. Look, Major League pitchers may not get that much in government services. Rock and Roll stars may not get that much in government services. Or any other high earned income person you can think of.

But they also don't get to pay a capital gains rate on what is most definately standard earned income.

If you want to change the tax code so that everyone pays for what they get go for it. I don't think you have much chance of getting such a bill passed, but fine.

Until then, why should hedge fund managers essentially be exempted for a large percentage of the taxes everyone else owns.

[Brett Bellmore]

"They ARE getting that much in government services, and they get quite a lot more benefit from them than the poor do"

That's an interesting question: If I use a KWH of electricity to surf online comics, and the web developer next door uses the same electricity to earn $10,000 in commissions, should he pay 100 times the rate for that electricity?

That's basically the claim that's being made here, and it's a claim which would logically have the wealthy being charged $50 for a burger at Hot 'n Now, because he's earning more money while burning the calories.

That's a version of 'fairness' I explicitly reject: In a competative market, products get priced at a bit above the cost of production, not at the rate that extracts from the consumer most of the benefit of buying the product.

Essentially, you're suggesting that the government behave as a monopolist does in the market. But, in the market, don't we view that as bad?

[H.L. Mencken]

"This raises the question: Is the state and local tax deduction justifiable in the first place? I think not. Suppose the residents of town A vote for high local taxes to finance, say, a municipal pool. The residents of neighboring town B keep taxes low, allowing people who so choose to join a private pool club. Because of the federal tax deduction, town A gets a federal subsidy at the expense of town B. This outcome is neither equitable (it is violates the principle of horizontal equity) nor efficient (it encourages excessive provision of goods and services by states and localities over the private sector).

So if we want to get rid of the AMT, let's combine it with eliminating the state and local tax deduction. That would be, I believe, approximately revenue neutral. I understand that this proposal would not fulfill the political goal of rewarding blue-state voters, so I am not holding my breath expecting it to happen."

May I rephrase that for you Greg? Let's try:

"This raises the question: Is the [mortgage interest] deduction justifiable in the first place? I think not. Suppose the residents of town A [build enormous mcmansions with huge financing cost deductions], say, [in a new high-end gated development]. The residents of neighboring town B keep taxes low, [maintaining reasonable zoning and building regulations]. Because of the federal tax deduction, town A gets a federal subsidy at the expense of town B. This outcome is neither equitable (it is violates the principle of horizontal equity) nor efficient (it imposes excessive [building and infrastructure burdens] on states and localities, rather than the private sector).

So if we want to get rid of the AMT, let's combine it with eliminating the [mortgage interest deduction]. That would be, I believe, approximately revenue neutral. I understand that this proposal would not fulfill the political goal of rewarding [wealthy max-contributors], so I am not holding my breath expecting it to happen."

[Nate]

Most baseball stadiums are paid for by state and local governments. Much baseball income comes from television, which uses airwaves regulated and auctioned by the government. Airports and the rest of transportation infrastructure are essential to the existence of baseball. Baseball players get endorsement contracts. Etc.

Rock stars make some of their money from royalties on copyright (the studios take most of it). Television and radio stations play music for advertising, over the airwaves. Travel, once again. Electrical infrastructure for those guitars. Most big arenas are either sports stadiums or partially or wholly funded by the government. Distribution over the Internet, now. Etc.

Many of these can apply to pretty much anybody who makes lots of money, because they make their money in the framework of society and government, and therefore use the tools and things both have created.

I'm just saying. :)

[H.L. Mencken]

While we're at it, Greg, we can also discuss how those nefarious blue states subsidize federal largesse to the sainted red states via federal tax remittances and aid/grants:

"There is no relationship between defense
spending per state and the state’s Electoral College vote. However, the relationship between non-defense spending and the vote becomes even stronger: States that benefit the most from non-defense spending (from retirement and welfare payments to farm subsidies to highway construction) give even higher margins to Bush. For each additional 10 cents per dollar that the federal government spends in a state, Bush’s margin increases by over 2.9 percentage points...

The real effect of federal finances on vote shares comes from tax burden. States that have a higher per capita federal tax burden have more Gore voters; states with a lower per capita federal tax burden have more Bush voters. A $1,000 per person increase in federal taxes indicates a 7.6 percentage point decline in Bush’s vote margin. This result is indeed curious since Bush campaigned on a platform of lowering taxes and reducing spending. This message
appears to have been best received in states that have low tax burdens already. Voters in states with higher per capita federal tax burdens, concentrated in the Northeast and Great
Lakes, were less receptive."

http://psweb.sbs.ohio-state.edu/faculty/hweisberg/conference/Lacy-OSUConf.PDF

So we'll give up the state tax offset on the 1040 when red states stop nursing at the federal teat. How's that for *horizontal equity*?

[OCSteve]

Does anyone recall if any politicos or pundits predicted this would happen with the AMT back in ‘69? I’m curious if anyone called it right but there is not much available from that year online.

[Sebastian Holsclaw]

I wonder if "H.L Mencken" is being intentionally ironic when he uses the mortgage interest deduction as a 'foil' to Greg when Greg is on record as not being a fan of the market-distorting effects of the mortgage interest deduction but acknowledges that killing it would be super-tricky to unwind at this point (though perhaps easier now than before). I'm suspicious because the 'reasonable zoning regulations' which avoid leading to high prices are found in Republican areas, not Democratic ones (like New York, San Francisco, D.C. etc. whose skyrocketing prices are largely caused by zoning regulations which sharply restrict building compared to other cities).

That's the problem with appropriating the name of a well known satirist--if you make mistakes it can be difficult to tell if making fun of the people who would believe that, or if you just haven't looked in to the issue enough to make an informed comment.

[Gary Farber]

It's been a bunch of weeks since I last reminded people how to link, so: How To Embed A Link.

Here is a handy guide to HTML tags.

You can use "find" to go to "link something."

Here's how you link (you can copy this and paste it as necessary, if you can't remember):

Put words as necessary between > <

Put the actual URL to link to where it says "URL."

You're done. It doesn't matter if you capitalize or not.

[Sebastian Holsclaw]

Hmmm, in the next comment by "H.L Mencken" we see an odd argument for a Democratic Party supporter to be making.

Are you for or against redistribution from the wealthy to the poorer? Or are you only for redistribution from rich Republicans to poor Democrats but against redistribution from rich Democrats to poor Republicans?

Looking more like a subtle anti-Democrat satirist, but perhaps just deeply confused. :)

Maybe I should post under "C.S. Lewis" and see if that helps my posts?

[Catsy]

That's an interesting question: If I use a KWH of electricity to surf online comics, and the web developer next door uses the same electricity to earn $10,000 in commissions, should he pay 100 times the rate for that electricity?

This has got to be one of the most retarded attempts at comparing apples to kangaroos that I've ever seen on the internets. I can't decide whether you honestly believe that and therefore don't understand the first thing about marginal utility, or are just saying it to derail the discussion. Let me know which it is.

And while you're at it, I highly suggest you re-read Nate's post until you understand what the point is. Hint: it's not who should be charged more for public utilities, it's whether or not the a given tax rate has the same effect on the ability of a rich person to make ends meet as it does on someone who's living paycheck to paycheck.

[Hartmut]

referring to rea at 7am
I know, they were the 'publicans'. They have obviously reincarnated as the Republicans ;-)
Citing the Romans would not have made my (ironic) point since the Roman Empire did not fall as a result of abusive taxfarming, while it played a nonnegligible role in the French Revolution (Don't know how taxes and tolls were collected in pre-revolutionary America).

[Hartmut]

All French all equal before the law. The law forbids both rich and poor alike to sleep under bridges. (actual words of a French politician who seemingly did not see the irony).

[Nate]

Brett: I didn't know you read webcomics.

However, that wasn't my argument. My argument was for marginal utility and public goods and therefore progressive taxation. Your argument (in the other thread, though they overlap now) was that people should "Pay for what they get." So I was taking that logic and showing how the rich still get more out of government services, especially public goods, than the poor do, but much of it's less direct. So even by your own argument, the rich should still pay more than the poor. Which includes more of the provision for public goods as well.

And since you didn't answer in the other thread, do you really think that progressive taxation, or even a flat tax, is Communism? You kept quoting "From each according to their ability, to each according to their needs."

[Gary Farber]

"Maybe I should post under 'C.S. Lewis' and see if that helps my posts?"

Will there be talking animals?

[Gary Farber]

"The law forbids both rich and poor alike to sleep under bridges. (actual words of a French politician who seemingly did not see the irony)."

"The law, in its majestic equality, forbids the rich as well as the poor to beg in the streets, steal bread, or sleep under a bridge."
-- Anatole France

Rather more eloquent.

It's one of the quotes on the sidebar of my blog. The original was in French, of course.

[Sebastian Holsclaw]

"Will there be talking animals?"

Look around Gary. They are already here! :)

[Brett Bellmore]

"So even by your own argument, the rich should still pay more than the poor. Which includes more of the provision for public goods as well."

Indeed, they should. I just think that it's hard to make a case that the amount they should pay scales even linearly, (Flat tax) with their income. Maybe logarithmically would be closer to the truth.

[Hartmut]

The way I remember it (with only the bridge), it was by a politician but it is obviously possible that one was quoting the other or coming up with the same image independently. Since I can't remember who exactly the quote was attributed to in the book (I think it was in Geyer's essay "Über die Dummheit" (On Stupidity) but that book has no index, so it would be difficult to check). No dispute about the AF version being more eloquent though.

[H.L. Mencken]

"Are you for or against redistribution from the wealthy to the poorer? Or are you only for redistribution from rich Republicans to poor Democrats but against redistribution from rich Democrats to poor Republicans?"

Neither, necessarily, just against hypocrisy. It was offered in rebuttal to Greg's snarky comment in his full post about the goal of "rewarding blue state voters". One guy's *reward* is another guy's subsidy. Always has been. Always will be. The mortgage deduction was conceived as a way of promoting home ownership, a linchpin of the 'ownership society' which would lead to people taking an interest in the well-being of their own neighborhood.

But since you asked, I have no problem with some degree of redistribution, at least as far as a basic safety net is concerned. But what I'm definitely against is the demand for *tax relief* from quarters that most benefit from the very public financing that derives from taxation.

As for the local and state taxes, I always thought that 'states' rights' and 'local control' were what conservatives preached. So when states and localities choose to provide for the welfare of their residents to the extent that the federal government did not, why should they be double taxed for those expenditures?

[Hartmut]

To pour some oil into the fire. From what I read in the German papers parts of California especially affected by the fire had to practically abolish fire services because anti-tax constituents had indeed starved the beast. In that case (provided it is true) the reaction should have been to either deny them federal (or state) help completely (and to charge private firefighters for use of infrastructure, water etc.) or to present them with the full bill (also denying them any deductability for the expenses).

[Nate]

Brett: Well, that disagrees with your idea of a single cost head/poll tax for everyone. And the rich do make much more use of many of the tools of government and society, but it's usually more subtle and diffuse than just getting a check. I suspect it scales more than linearly, personally.

Also, the rich already have their wealth and status on their side, they don't really need the government to lend them even more of a helping hand than it does already. So government should best look out for the poor. Plus the fact there are many more poor than there are rich, and a government of and by the people should look to the interests of the people first.

[Gary Farber]

"The way I remember it (with only the bridge), it was by a politician but it is obviously possible that one was quoting the other or coming up with the same image independently. "

Um, no, it's not. It's from Le Lys Rouge (The Red Lily), ch. 7 (1894).

It's well known that it's from that work by Anatole France, the winner of the Nobel Prize for Literature. It's eminently verifiable.

Full original text here: "Autre motif d’orgueuil, que d’être citoyen! Cela consiste pour les pauvres à soutenir et à conserver les riches dans leur puissance et leur oisivité. Ils y doivent travailler devant la majestueuse égalité des lois, qui interdit au riche comme au pauvre de coucher sous les ponts, de mendier dans les rues et de voler du pain."

[Gary Farber]

That is, it's a sure thing that zillions of politicians, and other types of humans, have paraphrased Anatole France's quote, of course. Equally obviously, the gist of the thought must surely be ancient.

But he's the guy who wrote the phrase that became famous. Wording is crucial to crystallizing and precisely expressing thought. Thus, credit where due, in my view.

[Bruce Baugh]

I'm not going to pursue this at length because there are all kinds of ramifications I'd want to think out, but...

One might argue that wealthy people's wealth depends to a much larger degree than the small estates of the poorer classes not just on the wealthy person's own situation but the fundamentals of a whole lot of other people's situations. The rich person is likely to have employees and customers that they'd prefer not be in armed uprising or spreading plagues, for instance. Rich people travel more and have more widely spread holdings, and are therefore much more likely to be directly affected by federalism in action, with concomitant interests there. And so on - wealth supports more of the overall structure of the system because more of the structure matters to wealth and its custodians and creators.

[Sebastian Holsclaw]

"As for the local and state taxes, I always thought that 'states' rights' and 'local control' were what conservatives preached. So when states and localities choose to provide for the welfare of their residents to the extent that the federal government did not, why should they be double taxed for those expenditures?"

Huh? Your point doesn't make any sense to me.

Who is being double taxed? If states or localities decide to provide more services than the federal government provides, local taxes isn't "double taxing" it is "paying for the EXTRA services you want on top of what you already get from the federal government.". The states have the right to provide MORE than the federal government. Why you believe that ought to provide a federal tax break is mysterious.

"But since you asked, I have no problem with some degree of redistribution, at least as far as a basic safety net is concerned. But what I'm definitely against is the demand for *tax relief* from quarters that most benefit from the very public financing that derives from taxation."

I gathered that first sentence.

As for the second, there is discussion above about 'most benefit'. I suspect you could easily argue that richer people get more 'benefit' from having a well ordered society than poor people on an absolute dollar value basis. (Though I don't believe it is strictly true for all values of X and X+1, I suspect that the lower middle class for instance gets less than the some of the people below them). But could already be covered by taxing a fixed percentage of income. 30% of $10 is less money than 30% of $1 million. You have to argue that the rich person gets greater value as a percentage of net worth than the poor person. And it has to be much greater to justify even small percentage differences because each small percentage step is a huge amount of money. Since rich people seem to exist in societies with less 'rule of law', I'm not sure that position is easily defended. Which is not to say that progressive taxation is automatically bunk, but rather that your explanation of why it ought to exist (here in the comments, perhaps not in your head or in your understanding) is pretty deeply deficient.

I tend to agree with Milton Friedman that it isn't wise policy for the majority of the population to get in the habit of having its wants and desires paid for by other people (i.e. voting to have 'the rich' pay for what you want). Like Friedman, I think it might be morally proper for the majority to decide that some small minority is too poor to pay much in taxes, but it shouldn't get in the habit of having different tax rates on 'other people' to help pay for what 'I' want.

[Brett Bellmore]

"Brett: Well, that disagrees with your idea of a single cost head/poll tax for everyone."

Well, it might if that's what I was advocating. But what I'm advocating is that taxation be based on user fees to the extent that the costs can be directly attributed to particular taxpayers, with the balance being handled on a head tax basis. With some provision akin to food stamps for people who can't afford to pay the taxes they really owe on this basis.

A poll tax, of course, is a tax you have to pay to vote, and I'm not advocating that.

[Nate]

Many of the things we have been talking about are things that can't easily be narrowed down to individuals. That's what "Public Goods" means. They are still used more by the rich and benefit the rich more. Therefore the rich should pay more for these, which your head tax for public goods that can't be easily covered by user fees is supposed to cover. Therefore the head tax would have to be progressive, or it would fall disproportionately on the poor. I think you're massively underestimating the amount of the system that benefits the better-off.

Which leaves aside marginal utility, the benefits of having a society that guarantees a certain level of security (such as preventing riots and mobs), and all of the other arguments in favor of progressive taxation.

And you still haven't answered if you think a progressive, or even apparently, a flat tax, is communism.